Question 1

Chapter 9: A pharmacist is trying to determine the inventory order and stock levels for a particular drug. The following information is available about the drug.

Demand (D)	65 tablets/week
Working weeks per year	52 weeks
Unit holding cost per year (H)	$5
Order cost (S)	$50/order
Standard deviation of weekly demand (sd)	21 tablets
Lead time (L)	3 weeks
Desired cycle service level	90%

a) What is the economic order quantity (EOQ) for the drug?

b) What would be the average time between orders (in weeks) for the EOQ model?

c) If the firm decides to use the continuous review system to control the inventory for the drug, what should the reorder point R be?

d) If the firm decides to use the periodic review system to control the inventory for the drug, what should be the target inventory level T? Assume that the time between reviews, P, is the average time between orders as calculated in part b.

e) For the most recent review, an inventory clerk checked the inventory of the drug and found 350 tablets. There were no open orders or backorders at the time. Determine how many units should the firm order for the periodic review system.